A Comparative Study Of Hedging

When enterprises trading commodities, theyoften choose to use futures as a hedging strategies. But in the real life, the hedge can’t do effect as they wished, because of the lack of understanding precisely. It can not decrease the risk, but pull in the opposite direction. In the background of losing more than without hedge, it become more and more important to the study of hedging using futures contracts. In the recent decade, the theory of hedging developed fast, there are a lot of model had been created. The enterprises have troubles to choose which model they should be used. Besides that there are little research of hedging strategies contain the study of higher moments risk,which can greatly increase the probability of extreme loss. So this thesis compare the futures hedge model with higher moments and other hedge model without higher moments, explain the result of variety models.In details, the paper select OLS model, ECM model and ECM-GARCH model to estimate the optimal hedge ratios, and proposes nonlinear futures hedging model under higher moments and different levels of risk aversion. Through the comparison, it shows that higher moments have a big impact on the hedging strategies.